DEFINITION of 'Prepaid Finance Charge'

Charges on a loan agreement which are not included as part of the principal amount being borrowed. Prepaid finance charges can include such things as administration fees, loan insurance and discount points. As these expenses are not a part of the "asking amount," they are considered to be prepaid in nature. These expenses typically must be paid by the borrower at the time of loan closing.

BREAKING DOWN 'Prepaid Finance Charge'

Prepaid finance charges, or closing costs as they are also commonly known, are common in lending agreements, including mortgage borrowing. While not directly incorporated in the cost of borrowing calculation for a loan, these expenses do affect the APR, as upfront fees should be included in the total cost of borrowing statement given to borrowers at loan signing, as is stated in Truth In Lending documentation.

RELATED TERMS
  1. Stock Loan Fee

    A fee charged by a brokerage firm to a client for borrowing shares. ...
  2. Roll In

    A term which refers to including loan costs into the initial ...
  3. 100% Mortgage

    A mortgage loan in which the borrower receives a loan amount ...
  4. Payday Loan

    A type of short-term borrowing where an individual borrows a ...
  5. Prepaid Cards Processor

    A company that processes transactions for prepaid payment cards. ...
  6. Second Chance Loan

    A type of loan associated with subprime lending and borrowers ...
Related Articles
  1. Personal Finance

    How To Read Loan And Credit Card Agreements

    The devil is always in the details! Find out what you're signing yourself up for.
  2. Personal Finance

    Prepaid "Credit" Cards: Convenience At A Cost

    These cards offer convenience and security, but are they worth it?
  3. Personal Finance

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  4. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  5. Personal Finance

    Lending From A Loan Officer's Perspective

    Learn how a loan officer thinks, so that you can get the best and safest loan.
  6. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  7. Personal Finance

    Understanding Loans

    A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.
  8. Small Business

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  9. Personal Finance

    Home Improvement Loans: What Are Your Best Options?

    If you plan on taking out a home improvement loan, you should know what your options are and which ones might be best for your situation.
  10. Financial Advisor

    The Best Way To Borrow

    There are many avenues from which to drum up funding. Find out the pros and cons of each.
RELATED FAQS
  1. Does working capital include prepaid expenses?

    Discover how prepaid expenses can be classified as short-term assets included in the calculations for determining working ... Read Answer >>
  2. How are prepaid expenses recorded on an income statement?

    Understand how prepaid expenses are recorded on a company's financial statements. Learn why a prepaid expense would be considered ... Read Answer >>
  3. What transactions cannot be made using prepaid credit cards?

    Find out about the transactions that are restricted when you use a prepaid credit card, and find out about other ways to ... Read Answer >>
  4. Do prepaid Credit Cards have monthly fees?

    Choose a prepaid debit card with a fee structure that doesn't eat away at the existing balance by considering how you intend ... Read Answer >>
  5. How do prepaid expenses affect liquidity ratio calculations?

    Understand how prepaid expenses affect a company's liquidity ratio calculations. Learn about the most common types of liquidity ... Read Answer >>
  6. Can I use a prepaid credit card to pay bills or to transfer money to other accounts?

    Learn how prepaid credit cards enable convenient bill payments and transfers. Explore different fees charged for such transactions. Read Answer >>
Trading Center